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Japan to join talks on Pacific trade pact

Friday - 3/15/2013, 5:29pm EDT

ELAINE KURTENBACH
AP Business Writer

TOKYO (AP) -- Prime Minister Shinzo Abe announced Friday that Japan will join talks on a Pacific trade pact that would oblige the country to open up sheltered industries including farming, long a bastion of protectionism.

The decision to seek participation in the U.S.-led Trans-Pacific Partnership, or TPP, raised protests from farmers, who are a traditional bastion of support for Abe's Liberal Democratic Party.

Many in Japan, however, see the pact as a way to overcome stubborn resistance to reforms essential for reviving the stagnant economy. In a national address, Abe said Japan has no choice but to opt for the growth that comes with freer trade or lose out to other countries that are capitalizing on such market opening.

"Japan has run into a big wall -- low birthrate, aging and lingering deflation -- and we have turned inward looking," he said. "If Japan becomes the only one that turns inward, there is no chance for our growth. No businesses would want to invest in such a country and talented people would not be interested."

"Joining TPP would be the beginning of a new Japan," Abe said.

He repeatedly pledged to guard Japan's national interest and ensure that the trade pact would benefit farmers as well as other Japanese.

"What we really should fear is doing nothing," Abe said. "I promise you that we will guard our sovereignty as we pursue our national benefit through these negotiations."

Despite such promises, Japan's tariffs on farm products would likely have to come down: the average tariff on imported rice is nearly 800 percent, while rates for butter and sugar are over 300 percent.

The decision to join the talks dovetails with his "Abenomics" economic strategy, which is based on easing monetary policy, boosting public spending and longer-term reforms.

"TPP is a core issue for Japan right now. The main thing is that Abenomics, the plan of getting Japan moving and growing again, does not only depend on printing more money or on fiscal spending, but really depends on liberalizing the economy," said Martin Schulz, an economist at Fujitsu Research Institute in Tokyo.

"For that, TPP is a core part because it involves all sectors, from energy, to agriculture, insurances, the car industry as well. That would be a big step for Japan," Schulz said.

Japan's agricultural lobby is small but politically powerful. However, after two decades of stagnation, calls by big business groups such as the Keidanren to join the trade pact or miss out on easier access to key export markets appear to have outweighed objections from farmers.

The average age of Japanese farmers is 66 and hundreds of thousands will retire in the coming years.

"If we don't do anything about this, we cannot protect our villages or our beautiful countryside," Abe said. "And that is the reality we face, whether or not we join TPP."

News reports Friday said the government estimates that joining the Pacific trade agreement would boost Japan's GDP by as much as 3 trillion yen ($31 billion) a year, equal to about 0.7 percent of GDP in the first year.

With Japan's participation, the free trade zone "would cover basically 40 percent of (world) GDP. It would be a very, very big area and it would have a significant impact," Schulz said.

Abe held back from committing to the trade pact until his recent visit to the U.S., where after meeting with President Barack Obama the two leaders issued a statement appearing to offer some wiggle room for Abe on thorny issues such as heavy protections for Japan's rice farmers.

In a statement, acting U.S. Trade Representative Demetrios Marantis welcomed Abe's announcement Friday, but said "important work remains to be done" in the consultations that began early last year on the automotive and insurance sectors and other non-tariff measures, and on meeting the TPP's high standards. He said the consultations would continue as the 11 TPP countries consider Japan's candidacy.

Apart from the imperative for reforming the economy, Abe's agreement to push ahead with trade liberalization also reflects geopolitical realities: Japan's status as the leading U.S. ally in Asia also swayed the decision to participate in the trade talks.

"We have no choice," said Masayuki Kichikawa, of Bank of America-Merrill Lynch. "This is kind of a very delicate matter for Mr. Abe."

That angers some groups who object to foreign influence over domestic policy, including those who view the plan as an American scheme to usurp Japan's sovereignty.